Why Bank of America is a “Sell” Up Here

It looks to me like the right thing to be doing right now in shares of Bank of America is to be selling. There are four charts that I’m looking at that all say the same thing: Sell Bank of America!

The first chart helps to put things in perspective. We’re looking at a weekly bar chart running into resistance from 2009 and 2010. Last time prices were up here they fell by 75%. This is a level where the sellers have proven they are in control. I don’t like to fight that:

3-27-2014 bac

Bank of America has tripled in the last 2 years. I think it’s now the time to be selling. Here is a relative strength chart showing Bank of America vs the S&P500. Momentum in relative strength is putting in a bearish divergence. With relative prices running into former highs, momentum is already putting in much lower highs:

3-27-2014 BAC vs SPY weekly

We are seeing something similar on the daily relative strength chart. Higher highs that failed very quickly combined with another bearish divergence in momentum:

3-27-2014 BAC vs SPY daily

And finally here is a closer look at what is happening today. With the longer-term picture warning us of bigger trouble ahead, we can see in the short-term that we had a failed breakout in price followed by a bearish momentum divergence at recent highs.

3-27-2014 BAC daily candles

A break below 16.70 would confirm a break of the recent uptrend line, it would confirm the bearish momentum divergence, and it would be a lower low which breaks the trend of “higher lows & higher highs”.

I would look for a breakdown below that key level as some big time confirmation. On the flip side, I would take a much more neutral stance in this name if prices break back above 17.65. Up there things get a little bit more messy and would deserve a reevaluation of the bearish thesis.

Things don’t look good in the stock market. Here is why we got bearish the Nasdaq recently as money flows into the safe haven that is the US Treasury Bond market. I think this trend continues.

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Tags: $BAC $SPY $XLF


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